Is it time for Microsoft to grab Nokia?

Commentary: They have a tablet. Do they need a phone?

If investors are to buy into the concept that Microsoft is going to push more and more into direct retail sales with its stores, then investors are going to have to buy into the thesis that Microsoft is going to sell more and more branded hardware.

At some point, this means a phone, just like Apple.

We already know that the Microsoft strategy is to push the Windows Phone 8 OS into the market whether anyone wants it or not. This desire is so extreme that the company has fashioned all of its operating systems after the Phone OS.

The difference between the phone running Windows Phone 8 and a desktop running Windows 8 is that the desktop cannot be held up to the ear to make a phone call. That’s about it.

Getty Images

LOS ANGELES, CA - JUNE 18: Microsoft CEO Steve Ballmer shows the new tablet called Surface during a news conference at Milk Studios on June 18, 2012 in Los Angeles, California. The new Surface tablet utilizes a 10.6 inch screen with a cover that contains a full multitouch keyboard. (Photo by Kevork Djansezian/Getty Images)

Microsoft is going to mimic Apple, to an extreme. All the formulaic aspects of the Apple store that can be copied will be copied, and this will include selling branded hardware.

So what about one of the most popular items in an Apple store? The iPhone?

Microsoft is going to have to have something sooner than later and that means it is going to have to buy a handset maker or find a shop in China or Korea to make a branded phone.

The big OEM players who could handle the potential volume are Samsung, HTC and Foxconn. Foxconn and Samsung are swamped already, leaving HTC.

But why deal with this aggravation when Microsoft can simply buy its partner Nokia for between $10 - $20 billion.

The market cap for the Nokia stock is under $10 billion with an enterprise value of about $4.5 billion and a book value pretty much floating around the price of the stock itself.

After looking as if it singlehandedly decimated Nokia by planting a Microsoft executive as CEO and then shoved Windows Phone 7 down its throat to choke, Microsoft is going to have to pay a premium for the company lest the shareholders burn down the offices.

This probably means $4 a share or perhaps more. Let’s dream and say Microsoft would pay $20 billion for the company. Microsoft has $66 billion in the bank and can probably do this deal giving Nokia shareholders some of their lost money back. Microsoft would have enough money left to buy Dell for $25 billion and still have money left.

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With Dell and Nokia, it would now have a branded phone, branded computer, branded laptop and be in the server game, too. Or the company could just buy the PC part of Dell, which is almost a loss leader as the company, along with HP, has moved into services more than hardware.

A lot of possibilities exist, and there is nothing to indicate that Microsoft is going to reverse course on its retail strategy. Investors will be wise to keep an eye on the possibilities for various Microsoft-initiated M&A opportunities that directly relate to a retail strategy of selling branded goods.

Nokia is at the top of my watch list. But don’t be surprised by any other Microsoft deals along the way.

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